Shepard Davidson

Even a Clear Choice of Law Provision Can Be Vulnerable

When two parties reside and/or conduct business in different states, any agreement between them almost always has a choice of law provision. Typically, such a clause is as simple as: “The Parties agree that this Contract shall be governed and construed in accordance with the laws of the Commonwealth of Massachusetts.” As the Superior Court held earlier this month in Oxford Global Resources, LLC v. Hernandez, however, such simple and straight-forward language is no guaranty that a court will abide by it.

Oxford is a Delaware corporation and claims to have its principal place of business in Beverly, Massachusetts. Jeremy Hernandez is a California resident and was hired by Oxford to work in the company’s California office. As part of the hiring process, Hernandez was required to sign Oxford’s Protective Covenants Agreement, which included (i) non-compete and non-solicitation covenants; and (ii) a provision stating that the Agreement was governed by Massachusetts law.

Oxford later brought suit against Hernandez, alleging that he breached the Agreement by using information regarding Oxford’s customers to solicit them on behalf of a competitor. Hernandez countered by moving to dismiss, and, in that connection, he argued that the Court should construe the Agreement in accordance with California – not Massachusetts – law. In addressing that Motion, the Court noted that:

A choice-of-law clause should not be upheld where … the party resisting it did not have a meaningful choice at the time of negotiation — i.e., where the parties had unequal bargaining power, and the party now attempting to enforce the choice-of-law clause essentially forced the clause upon the weaker party, and enforcing the clause would be unfair to the weaker party.

In this particular case, the Court found that:

Oxford has neither alleged nor proffered any evidence suggesting that the parties had any negotiation over the choice of law … provision[] contained in § 6.3 of the Agreement, or even that Oxford expressed any willingness to discuss those issues. … The only fair inference from the facts alleged by Oxford in its complaint is that Hernandez had no power to bargain over the combined choice-of-law … selection provision.

While Oxford argued that through the Agreement Hernandez acknowledged that he had the opportunity to read the document, ask an attorney to review it, and that he was not under duress when he signed it, the Court countered that this was “boilerplate language [that] cannot change the apparent facts that Hernandez had no bargaining power with respect to the choice-of-law clause[] in Oxford’s standard form contract, and that the Agreement signed by Hernandez was not the product of any negotiations between the parties.”

As you probably have guessed by now, after ruling that the contractual choice of law provision was unenforceable, the Court ultimately ruled that the Agreement should be construed according to California law. (Not a happy result for Oxford in light of California’s disdain for restrictive covenants.)

There are two key take-aways from Oxford Global Resources. First, never blindly assume that your choice of law provision is bullet-proof. Second, even if you are dealing with an employment agreement, consider sending a communication to the other side before the contract is signed, indicating that you are, in fact, willing to negotiate various provisions of the contract (including the choice of law provision). Doing this, may just be enough to ensure that your contract will be construed in accordance with the state law that you prefer.

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Shepard Davidson

Shepard Davidson

Editor

sdavidson@burnslev.com Shep is a partner in and former Co-Chair of the Business Litigation practice at Burns & Levinson, as well as a current member of the firm's Executive Committee. Shep concentrates his practice in the areas of complex business torts, contract claims, real estate disputes, and employment disputes.

Kelly Kirby

Kelly Kirby

Contributor

kkirby@burnslev.comKelly Kirby is an associate in Burns & Levinson’s Litigation Group. She maintains broad experience practicing before state and federal courts in various jurisdictions, including trial, pre-trial settlement negotiation, mediation, and arbitration. She is adept at preparing litigation plans that provide clients with optimal go-forward strategies and an understanding of the risks and rewards involved with their case. Kelly most enjoys communicating these strategies to her clients, believing that a clear plan diminishes some of the unpredictability associated with litigation.

Gregory Paonessa

Gregory Paonessa

Contributor

gpaonessa@burnslev.comGreg Paonessa is an associate in Burns & Levinson’s Litigation Group. He focuses on risk management and assessment to aid clients in resolving disputes efficiently and economically, and with an eye towards potential impacts on their businesses in the short and long term. His experience growing up as part of a family business provides Greg with unique insights and understanding of the client’s point of view. Although his practice has focused on resolving claims against design professionals, his education and experience in business is always a guiding factor when he advises clients.